SEC Bars 2 Bond Traders Who Lost Millions for Lawndale, Other Cities : Investment: Two bond traders who steered accounts from Lawndale and other Southland government entities into $8 million in losses have been barred from the securities business for life.
Two securities traders accused of bilking Lawndale and five other Southern California government entities out of more than $8 million have agreed to leave the securities business for life as part of a settlement with the federal Securities and Exchange Commission.
The brokers, William E. Parodi Sr., 47, of Woodland Hills and Frederick W. Parodi, 35, of Canoga Park, did not admit in the settlement to breaking federal securities laws. But the SEC, in findings accompanying the settlement, charged that the Parodi brothers had engaged in “excessive and unsuitable trading” that resulted in “significant customer losses.”
SEC officials say the Parodi case reflects abuses elsewhere in the country in which some bond salesmen have persuaded small government entities to let them invest their surplus funds. Dubbed “bond daddies,” the salesmen use the money in short-term, high-volume bond trading that wins them fat commissions--and exposes their clients to considerable financial risk.
“Though I’d be hesitant to say it’s widespread, I’d have to say it isn’t isolated,” said Elaine Cacheris, assistant enforcement administrator in the SEC’s Los Angeles office. “We are seeing public institutions being solicited to make transactions that are unsuitable for their investment strategy.”
Said Paula Cone, Lawndale’s assistant city manager: “Lawndale lost $1.67 million, roughly half our (investment) portfolio. It was quite a loss.”
Among the Parodi customers cited in the SEC findings were the cities of Lawndale, San Marino and Palmdale, Palmdale’s redevelopment agency, and the Three Valleys Municipal Water District in the San Gabriel Valley.
These entities, along with the redevelopment agency of Maywood, have filed suit against the Parodis, four other account executives, and the two brokerage houses they worked for--E.F. Hutton, now Shearson Lehman Hutton, and First Investment Securities Inc.--over the handling of investment accounts.
The lawsuit, filed in U.S. District Court in Los Angeles last year, charges that the Parodis and the other defendants violated state and federal securities laws. It seeks $8.3 million in compensatory damages and $16 million in punitive damages.
Other Southern California cities have reported losses as a result of transactions handled by the Parodis, including Rancho Palos Verdes, Chino, Imperial Beach, Bellflower and Camarillo. Rancho Palos Verdes reportedly reached a settlement with E.F. Hutton last year in which the brokerage returned to the city $1 million that it had lost plus some interest. The city of La Verne, which also had invested money through the Parodis, suffered no losses.
It is unclear to what extent the SEC findings affect the case of those cities and agencies that filed suit.
William Wynder, the attorney representing the plaintiffs, said he hopes to draw on documents and testimony the SEC gathered in reaching its findings. But Cacheris of the SEC said her agency would have to keep the records confidential because it settled with the Parodis before taking the case to administrative hearings in which evidence can be made public.
Gerry Boltz, the attorney who represented the Parodis in the SEC case, agreed: “Had there been an evidentiary hearing, that evidence might have been usable for them,” he said. “We think it is a privacy matter protected by the privacy rights of our clients.”
As for the settlement, which was approved by the five-member SEC on Sept. 27, Boltz stressed that in the agreement with the SEC, his clients expressly state that they neither admit nor deny the commission’s findings.
“The settlement is not an admission of any violation,” he said. Boltz said the Parodis would not comment on the case.
In its findings, the SEC said the Parodis concealed from Lawndale and other customers the riskiness of their bond transactions and the fact that some of those transactions could leave accounts in debt.
The federal agency also alleged that money solicited by the Parodis was used to fuel a flurry of bond buying and selling known as “churning” that generated a steady stream of commissions for the Parodis--and losses for clients.
For instance, from April, 1987, to September, 1987, the SEC says, accounts managed by the Parodis for Lawndale, Palmdale, San Marino and the Palmdale Redevelopment Agency yielded $133,000 in commissions on an average monthly cash investment of $1.3 million per account.
For the clients, however, the result was different. According to the SEC, trading during the five-month period left losses of $234,182 for Lawndale, $247,109 for Palmdale, $242,060 for San Marino and $235,371 for the Palmdale Redevelopment Agency.
The SEC report appears to be giving confidence to Lawndale and other local entities trying to recover money they lost in bond transactions.
Said Wynder: “We’re gratified that the SEC, in taking an independent look at the situation, came to the same conclusion as we did--that these brokers engaged in willful violations of federal securities laws.”
